INTERMEDIARIES PROTECTING YOUR INTERESTS
TLC Annual Conference
Albuquerque, New Mexico
May 2–4, 2016
By: Eric L. Zalud
Benesch Friedlander Coplan & Aronoff
200 Public Square, Suite 2300
Cleveland, OH 44114
(216) 363-4500
[email protected]
www.beneschlaw.com
Driver Coercion Regulations:
The Basics
• Final rule Prohibiting Coercion of Commercial
Motor Vehicle Drivers (49 C.F.R. Parts 386 and
390)
• Issued by FMCSA on November 27, 2015
• Applies to brokers
• Effective January 29, 2016
2
Highlights
• Prohibits coercing drivers to operate commercial
motor vehicles in violation of FMCSA safety
regulations and the federal hazardous materials
regulations
• Includes procedures for a driver to report to the
FMCSA an incident of coercion and for investigation
and action by FMCSA in response to reports
• Prescribes penalties that can be imposed on violators
found to have coerced drivers
3
Intermediaries:
• Will generally not be liable for coercion
– Do not employ drivers
– Motor carriers are not agents or
representatives of intermediaries
– Intermediaries are not employees of the MCs
they engage to physically transport shipments
– Intermediaries generally deal with MCs and not
individual drivers
4
What Should I Be Concerned
About?
• Is the broker exercising too much control?
5
Control
• Too Much Control  Coercion
–Direct interactions with driver in lieu of
MC
–Attempting to force the driver to make a
delivery on a schedule that would cause
the driver to violate the FMCSRs
–Tracking the driver’s HOS ability
6
Control
• Think Sperl v. C.H. Robinson, Inc., 946
N.E.2d 463 (Ill. Ct. App. 2011)
– broker exercised direct control over
driver  liable for tort committed by
driver
7
Brokers on the Offensive:
Using Contractual and Common Law Rights as a Sword
• Introduction: Evolving Broker caselaw (and industry) and
more sophisticated, Broker Centric Contracts
• Leverage Juxtaposition: often leverage is with Broker
• Potential wrongs: Double brokering (huge casualty/cargo
exposure); back solicitation (hard earned customers!);
confidentiality clauses (knowledge is an asset); trade
secrets / non-competition/customer lists (most important
asset)
• Common law and contractual causes of action: tortious
interference; breach of contract, breach of covenant of
good faith; misappropriation of trade secrets
• Attorneys Fees’ Can be Recoverable
8
Back Solicitation Lessons
From the Case Law: All-Ways Logistics, Inc. v. USA Truck, Inc.,
2007 U.S. Dist. LEXIS 48034 (E.D. Ark. Jul. 2, 2007)
• Plaintiff/Broker/Agent, All-Ways, and motor carrier, USA Truck, entered into
brokerage commission agreement.
• All-Ways: 5% commission for USA freight brokered by All-Ways.
• USA terminated agreement and contracted directly with Rheem, one of AllWays’ shipper customers.
• All-Ways sued for (1) breach of contract; and (2) tortious interference.
• Court: whether commission agreement contained implied prohibition against
back solicitation was question of fact for Jury.
• Whether back solicitation violated implied covenant of good faith and fair
dealing also for Jury.
• Factual issues of actual reliance on USA’s promise not to engage in back
solicitation and whether reliance was reasonable.
• Also refused to grant summary judgment on All-Way’s tortious interference
claim; evidence of secret conversations with the customer and USA about
contracting directly with USA.
• And, Punitive damage claims stayed in case!
9
Back Solicitation Backstories
Parisi Enters. v. CRST Van Expedited, Inc., 2006 Iowa App. LEXIS 783
(Iowa Ct. App. Jul. 26, 2006)
• Plaintiff/Broker Parisi and defendant, CRST, entered brokerage commission agreement.
•
Agreement included back solicitation provision that prohibited CRST from approaching
Parisi Shipper customers for term of agreement and 6 months after termination.
•
CRST terminated agreement but continued to haul freight for Shippers Reckitt, Verizon,
and Hartz Mountain.
•
Parisi argued that these actions constituted breach of back solicitation agreement.
•
Court found: No evidence that CRST initiated contact with Verizon or Hartz Mountain.
•
Mere fact that CRST hauled freight for these customers did not mandate conclusion that
CRST improperly contacted them (CRST had preexisting contacts with both).
•
Also: Some evidence of improper contact with Reckitt, but Court noted that Parisi must
prove that CRST hauled Reckitt freight as result of improper contact.
•
Court awarded Broker Parisi Attorneys’ Fees!
10
Confidentiality Clauses: Keeping Your Secrets!
Magic Valley Truck Brokers v. Meyer, 113 Idaho 110 (Idaho Ct. App. 1999)
•
•
•
•
•
•
•
11
Plaintiff Magic Valley brokerage entered into non-compete agreement with employee
Meyer, which prohibited him from brokering within 300 miles of Boise and from
disclosing records/information regarding Magic Valley’s operations, customers, and
other specialized information.
When Meyer began working for another brokerage, Magic Valley sued Meyer for breach
of contract.
Meyer argued that could not be liable for breach of contract because Magic Valley did
not prove that he contacted its customers or used its confidential information.
Court: Meyer breached contract on other grounds; his new job was within 300 miles of
Boise.
But, court did not award plaintiff any damages because: (1) no evidence that plaintiff’s
actual damages stemmed from breach of contract, and (2) liquidated damages provision
in agreement was unenforceable because fixed damages did not bear reasonable
relationship to actual damages anticipated to be incurred.
Dual equation: Liability plus damages; No attorneys fees/no “prevailing party”
See, also Emmert Indus. Corp. v. Artisan Assocs., 2005 U.S. Dist. LEXIS 41758 (D. Oregon
Apr. 20, 2005). (Broker sued shipper for breach of contract, in part because
shipper disclosed confidential/proprietary information).
Confidentiality Clauses: Keeping Your Secrets!
Brown v. Rollett Bros. Trucking Co., 291 S.W. 3d 766 (Mo.Ct.App. 2009)
• Brown worked as a dispatcher for Rollett Logistics; was responsible for finding
loads by contacting established and prospective customers.
• Brown terminated employment with Rollett and went to work for competitor.
• Rollett sent Brown’s new employer letter claiming that Brown breached noncompete provision.
• Court: Agreement not enforceable because non-compete provision did not
operate to protect customer contacts or trade secrets.
• Brown’s interaction with customers did not rise to level of “customer contacts”
because customers ultimately made decisions based on price – not on preexisting relationship with sales representative.
• Also: Defendants’ customer list, rate sheets, and pricing process were not trade
secrets because most of information on customer lists was publicly available,
information contained on rate sheets was not “process” or device for
continuous use in the business,” and the plaintiff was never involved in pricing
process anyway.
• Tough to protect trade secrets without contract.
12
Confidentiality/Noncompetition
Agreements
• Confidentiality Agreements: Requirement to Use
Confidential Information; Consideration; Definition
of Confidential Information; Length of Restriction;
Agreement to Return Confidential Information;
Remedies; “At-will” Disclaimer; Miscellaneous
“Legal”; Signature
• Noncompetition Agreements: Confidentiality
Agreement, Plus: Need for Noncompetition;
Duration; Geography or Scope; Specifics of
Noncompetition requirement; Nonsolicitation
requirements; Acknowledgement of No Undue
Hardship
13
Contracting Tips to Minimize
Liability:
• Carrier and employees are independent contractors & not
employees of agents or broker.
• As freight broker disclaim responsibility for cargo, bodily
injury and all other claims.
• Specify that broker has no control over load in transit.
• Re-brokering not allowed.
• Carrier must notify broker if at any time carrier does not
hold a valid operating authority, satisfactory safety rating,
the required liability insurance.
• Driver selection completely at discretion of carrier.
• Compliance with applicable laws and regulations.
14
Tips for Contracting with Brokers
• Registered with DOT
• If not, stop right there – Simple procedure <$500. If they don’t know
how to do it, or don’t know that they should do it, there’s a problem
right there.
• Attach copy of registration to contract
• Require, in contract with broker, that it contract with lawful
carriers and get written confirmation of all carriers’ rates
• Assure that broker does not ship goods under limited liability or
released rates without shipper consent
• Provide that broker notify shipper of any problems with shipment
• Make sure that it is clear that broker is an independent contractor,
not shipper’s agent (liability problems, freight claim problems)
• Require broker to obtain copies of carriers’ insurance certificates
15
The Liability Limitations of the Carrier You Don’t Know May Still
Apply To You
• Liability limitations may pass through
• Broker’s knowledge may be imputed to shipper – Actual
knowledge, constructive knowledge, website notice and court
finds shipper’s agent – see partnership argument; Left with
limitations you didn’t know about
• Can be dealt with in contract; Notice of liability limitation;
requirement that broker declare value; insurance
16
The Next Wave: “Broker as
Carrier”/Wearing Too Many Hats!
₋
₋
₋
₋
₋
₋
₋
17
Broker as “Carrier”
Holding self out as carrier
Authority
Website
Brochures (truck photos)
Terminology
The Very Worst Pronoun!
Brokers as Carriers – Examples
from the Caselaw
• Travelers Ins. V. Panalpina, Inc., No. 08 C 5864, 2010 WL
3894105, at *5-6 (N.E. Ill. Sept. 30, 2010) (finding that company
was motor carrier when delivery order established obligation to
transport container and company fulfilled that obligation by
contracting with another company to make delivery)
• AIOI Ins. Co. v. Timely Integrated, Inc., No. 08 Civ. 1479 (TPG),
2009 WL 2474072, at *3 (S.D.N.Y. Aug. 12, 2009) (finding that
defendant qualified as “motor carrier” because it arranged for
shipment of goods by contracting with third party to provide
actual physical transportation, court being persuaded by fact
that defendant held itself out to shipper as carrier of goods,
that agreement between defendant and shipper authorized
defendant to transport goods, and that defendant was legally
bound to transport shipment).
18
Mach Mold Inc. v. Clover Assocs., 383 F.Supp.2d
1015 (N.D. Ill. 2005)/Brokers as “Carriers”
• “Motor carrier” and “Transportation” are broadly
defined, a broker or 3PL that intended to provide
brokerage services, may be considered a “carrier” by
the courts. (Statutory “Transportation” definition –
includes “arranging”)
• “[W]hether a company is a broker or a carrier/freight
forwarder is not determined by how it labels itself,
but by how it holds itself out to the world and its
relationship to the shipper.” Custom Cartage, Inc. v.
Motorola, Inc., 1999 WL 965686 (N.D. Ill. Oct. 15,
1999).
19
Mach Mold Inc. v. Clover Assocs., 383 F.Supp.2d
1015 (N.D. Ill. 2005)/Brokers as “Carriers”
• The court held that Clover was a motor carrier,
stating that:
Ownership of the vehicles used to transport the machine
does not determine whether Clover was providing
transportation or merely selling the transportation of another
carrier. The mere fact that Clover did not use its own motor
vehicles in transporting the machine does not preclude it
from being a motor carrier for the purposes of the ICA. Id. at
1029.
20
Brokers as Carriers/Suntopia Global Organic Ingredients,
Inc. v. C.H. Robinson Worldwide, Inc., No. CV-10-311-LRS,
2011 WL 1532063 (E.D. Wash. Apr. 21, 2011).
• Suntopia Global Organic Ingredients, Inc. contracted with C.H. Robinson as
cargo broker to arrange to transport apple juice concentrate from Wilmington,
Delaware to Omak, Washington, in temperature controlled truck transport.
• CHR engaged J & L Trucking as motor carrier to provide the actual
transportation.
• Upon delivery, the consignee rejected shipment because seals had been broken
and concentrate appeared to have spoiled.
• The primary issue for the court was whether CHR, as broker, could be held
liable for J & L Trucking’s negligence.
• Suntopia alleged that CHR, in its capacity as broker, was vicariously liable for J &
L Trucking’s actions as its agent, particularly because CHR identified itself as the
“Carrier” for the shipment on its “Shipment Detail.” Suntopia voluntarily
dismissed its federal claim under the Carmack Amendment.
21
Brokers as Carriers/Suntopia Global Organic Ingredients,
Inc. v. C.H. Robinson Worldwide, Inc., No. CV-10-311-LRS,
2011 WL 1532063 (E.D. Wash. Apr. 21, 2011).
Holding: There was no basis for holding CHR, in its capacity as broker, vicariously
liable for J & L Trucking’s negligence as its agent.
Reasoning:
• No evidence presented by Suntopia establishing that CHR controlled J&L
Trucking’s manner of performance.
• No contractual terms between CHR and J & L Trucking giving rise to a genuine
issue of material fact such that J & L Trucking could be considered CHR’s agent.
• Merely identifying itself as a “Carrier” for the shipment on its “Shipment Detail”
did not create a genuine issue of material fact as to whether J & L Trucking was
acting as CHR’s agent in transporting the concrete.
22
Closing Do’s and Don’ts
• Don’t use the worst pronoun
23
A Smorgasbord of “Don’ts”!
Actual Demand Letter from Shipper
24
Hot off the Presses!
An Excerpted Counter Offensive
Expressly disclaims all warranties or representations with respect to the services to be provided by [broker] pursuant to
the agreement, express or implied, including without limitations, the implied warranties of merchant ability and fitness
for our particular purpose. The company further agrees that [broker] will not be liable to the company for any balances
of whatever nature, including but not limited to, consequential, special or punitive, with respect to [broker]; carrying out
its obligations and duties as specified herein and/or any other matter relating thereto. The company agrees to look to
the freight carrier for damages to the company or its vendors were to suffer any damages in the delivery of any of its
property.
25
Protect Yourself as a Broker In
Invoicing Documents
26
On the Offensive - Unauthorized Brokerage –
Private “Cause of Action” Under MAP-21
– “Injured party” can pursue “valid claims” against
company or person engaged in unlawful brokerage
“without regard to amount.”
• Creates private cause of action against those engaged in
unlawful brokerage
• Any damages will not be statutorily capped
• No express limitation on the “type” of damage (cargo/personal
injury)
• FMCSA’s limited resources to police MAP-21 compliance means
private cause of action will likely serve as more meaningful
enforcement mechanism
• And personal liability for officers, directors and principals
27
MAP – 21:
A New Headache: Severe Consequences For
Unauthorized Brokerage, and Personal Liability
– $10,000 / violation civil fine (i.e., a government
penalty) for unauthorized brokerage; Creates
private cause of action against those engaged in
unlawful brokerage (a weapon?); No express
limitation on “type” of damage (cargo/personal
injury); (FMCSA enforcement limited)
– “Officers, directors, and principals” of company
engaged in unlawful brokerage will be “jointly and
severally” liable for any civil penalties and civil
damages imposed on company; need D&O insurance
28
CONTRACTING PRACTICES
• Defining Your Role and the Scope of Services to Customer under
MAP-21 and Otherwise
• Risks Arising from a Broker signing “Carrier” Contract; Extracting
Reciprocal Commitments from Carriers
Example of Clarity in Role and Scope
“Broker agrees to arrange for transportation services as more fully
set forth in Appendix A (‘Services’). Broker's responsibility under the
Agreement is limited to arranging for, but not actually performing,
transportation of the Goods.”

29
Critical Statutory Buzz Word!
MAP-21 and Contracts
• Transportation Contracts – 49 U.S.C. § 13901(c):
Specification of Authority.— For each agreement to provide
transportation or service for which registration is required
under this chapter, the registrant shall specify, in writing, the
authority under which the person is providing such
transportation or service.
• Is service being provided motor carriage, brokerage,
surface freight forwarding?
• What does “each agreement” mean and is it written?
– A “Master Agreement” that governs long-term
relationship?
– An “Episodic” Document that governs a particular
transaction (i.e., Bill of Lading, Load Confirmation, etc.?)
30
Risks in Signing A “Motor Carrier”
Agreement as Broker?
49 CFR 371.7(b)
A broker shall not, directly or indirectly, represent its
operations to be that of a carrier. Any advertising shall
show the broker status of the operation.
• A Partial Solution: “The Parties agree that the
description of ABC Broker in this Agreement as a
“CARRIER” is for SHIPPER’s convenience only and
does not change the status of ABC Broker as a
broker.”
31
Risks in Signing A “Motor Carrier”
Agreement as Broker?
Incongruity and Incoherence
Broker Assuming Carrier Duties
Description of Services: “[Broker] agrees to accept
from Shipper (subject to availability of equipment),
shipments consisting of commodities listed on
Schedule A attached hereto (the “Cargo”) for transport
between points within the United States. [Broker] will,
using due care, pick-up, transport, and deliver Cargo
that is tendered by Shipper to [Broker] and accepted by
[Broker].”
32
Risks in Signing A “Motor Carrier”
Agreement as Broker?
Incongruity and Incoherence
Broker Assuming Carrier Duties
Operating Responsibilities. [Broker]will be responsible for the
procurement and operation of the vehicles it uses and the
employment, training, supervision, and control of the drivers and any
helpers used to provide Services. [Broker] will be responsible for safe
and lawful operation of the vehicles used in the performance of the
Services and will assume all costs, expenses, and liabilities incident
to or arising out of furnishing, maintaining, repairing, or operating
motor vehicles and other equipment, labor, fuel, supplies, and
insurance.
33
What Kind of Contract Do You Enter
If You Operate Both a Broker Entity and a
Carrier Entity?
• Written Tripartite Agreement (Shipper, Motor Carrier,
Broker)
– Provide that loads tendered to either motor carrier or
affiliated broker may be handled by the other entity.
– Identify each entity's distinct MC number
– Contain acknowledgment and approval of affiliations and
the interplay between affiliated motor carrier and broker
– State that all parties intend for the contract to fulfill the
disclosure requirements set forth in 49 USC 13901(c)
– Memorialize each transaction with reference to MC
Number
34
Carrier’s Lien and Hostage Freight
• In certain circumstances, carriers authorized to
exercise common law and contractual rights to place
“carrier’s lien” on freight.
• “Life” of carrier’s lien is short. Carrier has lien upon
goods for its lawful charges, arising when it picks up
the freight.
• Lien discharged when carrier paid for goods.
Discharge contemporaneously entitles consignee to
goods.
• Carrier loses lien when it voluntarily delivers goods
or unjustifiably refuses to deliver.
35
Creation and Extinguishment
• Corollary principle: If carrier has been paid for load upon
which it carries goods, it has no lien. If it has not been
paid, it usually does have a lien.
• Carrier does not have right to lien and withhold delivery of
cargo because of shipper’s failure to pay freight charges on
separate, different and unrelated prior shipments.
• If freight is prepaid, there is not a lien even on goods being
shipped.
• With involvement of third-party intermediaries in shipping
sequences being so prevalent, it is possible that payment
may have already been made to intermediary, thus
spawning argument that no lien should apply, even if the
carrier has not directly received payment.
36
Releasing the Lien:
Providing “Adequate Security”
• Consignee or shipper may substitute “adequate
security” in form of bond or cash escrow as
substitute for the cargo upon which the lien is
claimed, and thereby recover the cargo.
• Security, however, must be in amount over and
above alleged value of cargo to be considered
adequate. Amount more than twice amount of
disputed claim is presumptively reasonable.
• If adequate security has been posted and carrier does
not return the freight, it may be liable for conversion.
There is no absolute right to retention.
37
Eric L. Zalud
Benesch Friedlander Coplan & Aronoff LLP
200 Public Square, Suite 2300
Cleveland, OH 44114
T: (216) 363-4178
F: (216) 363-4588
[email protected]
www.beneschlaw.com